Hammer Time! Financing An Overgrown Kid

Customer on phone: “What about that silver sports car with the stickshift you got on your lot?”

Steve: “That’s $4500”

C: “Are you financing it?”

S: “Nope. That one’s a cash deal fella’ but I have finance companies that will usually work with you to get the car bought. Is this for you or a family member?”

C: Family member.

S: This is for your son, right?

C: Yep. I’m shopping for my son.

S: He’s about 23, right?

C: Wow. You’re good! He’s 24.

S: And he just got into an accident that was his fault, right?

C: Well, umm… no, it wasn’t his fault. He hit a median.

S: Did he keep full coverage on it with a $500 deductible?

C: Ummm… no…. you’ve been doing this for a while?

S: Long enough to take really good notes.

And that’s the truth of it.

Back in late ’08 when it was tough to even sell a $2000 used car, I was left with two tough choices here in the neutron-bombed economy that was the northwest part of Georgia. .

1. Start financing cars and become the Bank of Steve.

2. Take the entire year of 2009 off, and maybe 2010 as well.

For a young man with a young family, it wasn’t too hard of a decision – work… or starve. I chose work and within three months I was financing over 40 local residents with my own money and cars on the line.

In no time I had to become the equivalent of an Israeli Airport screener whenever someone walked in the door. It may sound contrarian, but you were always trying to figure out why you shouldn’t be financing certain people. Some folks didn’t have the money. Others abused their cars like Mommie Dearest abused wire hangers.

My mentor, a guy named Dave Mattingly was a good friend of mine that had the unique fortune of financing folks for decades. He knew the good, the bad, and the ugly of it all. He was also at an older wiser point in his life, and unlike me in the beginning, he could size someone up in no time flat.

“If the car they came in with looks about as rough as a wore out mop, don’t finance them. Also, watch out for those who go for a two minute test drive and say, “I’ll take it!”. They usually have some mean old skeletons in their closet. ”

The first lessons I learned once the cars went out the door was that small actions from you, the dealer, could help avoid big reactions from the customer. The trick to not losing money was picking the right people, spending a lot of time auditing the condition and history of older used cars, and protecting the both of them from the absolute worst of outcomes.

In my first year of business I probably performed more brake jobs and $15 oil changes than anyone else in my neck of the woods because I wanted to inspect my cars and catch those small problems before they became big ones. If a part needed to be repaired, I would get it fixed free of charge if it was within 90 days. After that point I would usually put the actual cost of the repair at the end of the payments at no interest instead of charging the typical local standard of cost plus a 200% profit.

Just folks seeing a $50 repair on brakes by yours truly six months after the car left my barn, when they had routinely been milked for three to five times that amount at other places, was more than enough to get them to be the types of customers worth keeping. I kept everything honest and that step alone made life a lot less stressful. Those that couldn’t take the honesty, I cut out of my life.

“Steve, you never want to finance someone outside a ten mile radius because the further they are away from you, the less of a chance you’re actually going to get paid. Also, make sure you take care of little problems before they become big problems. People, cars, it don’t matter. If either one is defective you gotta take care of the situation quick!”

I got lucky. But being smart, pre-emptive and a bit OCD had an awful lot to do with it.

Back then you could get a perfectly good used car for $1500 or less at the dealer auctions. There was very little competition, and my focus on the low-end of the market along with my relationships with auctioneers and car dealers (I had already been on the auctioneer side of the business for nearly a decade) allowed me to hit ’em where they ain’t.

And there were a ton of aint’s you could buy back then.

A Ford Taurus from the late 1990s was a big, big ain’t. So were mid-90s Volvo wagons, GM minivans from the Clinton Era with cloth interiors, and any car that came from a second tier brand (Mitsubishi, Suzuki, and Hyundai back then) with something weird. Like a wagon with a stickshift, or a low-mileage sporty coupe with a scuff on the rear quarter panel.

It wasn’t hard to buy a little ugly and sell a little cheap. Deep recessions have a way of making an ugly workhorse look like the perfect showhorse when it came to buying an older used car.

You could easily buy a nice but unfashionable car for around $1000 to $1500 and then finance it for three times that amount, while breaking even some time around the fourth to sixth month of the agreement. Once the state decided that they wanted all their tax money up front this breakeven point got pushed back to the nine month mark. These days it typically takes about a year.

In the beginning I pretty much priced out the market. While my competitors did around $1000 down and $60 to $70 a week, I had what I called the $500 50/50. A $500 down payment and then a $50 a week for 50 weeks.

I figured that right around $7 a day was the going price to make even unpopular cars move. Thanks to a confluence of older folks who lost their houses and cars, but still had part-time jobs or at least one family member working, and a swarm of new and used car dealers going out of business, I soon became the local Forrest Gump with the exact right shrimping boat at the right time.

It was often times surreal. I had customers fix cars for other customers, and I paid them for going on site to do it. There were cars that I needed to repo, but very few of them, and a few of my customers who had second jobs with recovery companies would take in my business if I couldn’t do it myself. But that wasn’t often.

I did my homework when it came time to verify my customer’s ability to afford the vehicles, and most of the people financing figured that they weren’t going to find a deal cheaper than mine. My favorite line back then was, “I want to see you become a long-term owner instead of a perpetual debtor. So if there’s a little problem with the car or your life, let me know before it becomes a big problem. I can only help if I know I can help.”

I was lucky enough to be right about that.

Was I wrong on a few things? Yes. I definitely paid my tuition, but I learned a lot of good lessons about the role family members can have in making a wrong situation right. My policy on missed payments was simple:

1. If you can’t pay me, at least tell me the truth.

2. If you can’t tell me the truth, at least return my call.

3. And if you can’t return my call, I was coming out in person to make things right.

There were some who tried to take advantage. There was this one family that had been financing three vehicles from me; a Subaru Legacy, a Buick Park Avenue, and a Chevy Blazer. When the Saturday payment was due they would almost always miss it, and I would have to go out to their house a few miles away to collect those payments.

The funny thing was the parents were devout Jehovah Witnesses, in theory, and they thought this would be a great time to proselytize. Never mind that they were skipping out on payments, and one of their daughters had managed to reach the trifecta of wrong decisions before she was 25 (drug use, prostitution, and alcoholism). There wasn’t a holy Saturday that went by when this fellow and his wife weren’t flashing their “I love Israel” credentials at me, because I was Jewish, while at the same time bashing gays.

After the third or fourth time experiencing this I stopped being nice.

“Look. I appreciate you inviting me to my house, but all these visits I have to do are penalizing the time I have with my own family. I guess this is the right time to let you know that the bank is going to handle all of my payments from this point forward. They’re even open on Saturday and Sunday. Here’s the hours. If you miss any payments you’re dealing with them, not me. They own your cars.”

The next week I called all my customers and told them the new payment regimen. The local branch of Flagstar Bank would be taking in payments, and each customer would get a receipt showing their name on the payment receipt.

What I didn’t tell them was the bank would also put down notes on my weekly statement and give me a pile of receipts every week showing those deposits. This way I wouldn’t have to bother with hanging out at the car lot and wait for folks to come to me.

About 90% of my customers became long-term owners of whatever they bought. This was fantastic in a business whose success rate is only around 65%. But I focused most of my energy on finding used cars that had excellent prior owners who knew how to maintain a car without abusing. That made all the difference.

I soon found myself with a lot more free time on Saturdays and other times of the week to go do the things that meant the most to my well-being. Like selling cars, fixing cars, buying cars from the neighborhood new car dealers, and going to the local pawn shop and thrift stores so that I could find an endless array of tools and parts to make all of it possible. Heck, I even bought used tires, used batteries, and old radios to help make my cars complete since bald tires, tired batteries, and removed face plates are the three standard features on most trade-ins. that I bought.

Times were incredibly tough out in the Atlanta ex-urbs. By the way, have you looked at the price of batteries these days? It’s insane!

When the economy finally recovered I migrated back to cash deals. and these days I’m mainly a cash dealer who uses other banks and creditors of last resort to finance deals. A lot of my financially pinched customers eventually went on to today’s new car market where all you need to buy any new car is a pulse and a paycheck.

That’s fine by me. I loved having them as customers and I hope the economics of car ownership will be on their side going forward. But I can’t be financing their overgrown kids unless they are a co-signor and have their own skin in the game.

You don’t want one of your mobile investments to end up kissing a median with a mind of its own.